Statistics of phonograph record sales in the United States have been compiled back to 1921. Sales had reached approximately $105,600,000 at retail value in 1921. But thereafter the trend was reversed and sales hit a low of $5,500,000 in 1933. Since that time, there has been almost a constant increase and sales for 1962 (the most recent figures available) show the substantial total of $570,250,000. Since most recorded music is subject to copyright protection, the amounts paid by record manufacturers for copyright royalties have increased in approximately the same proportion as sales of records. Copyright royalty payments by United States record manufacturers to one collecting agent who represents an estimated 70% of all music publishing interests rose from $4,400,000 in 1955 to $13,194,000 in 1961. Such royalties represent a substantial part of the record company's costs of doing business; the most recent survey conducted by RIAA covered the years 1956 and 1957 and showed copyright royalties at 9.1% of net sales in each of those years.

American manufacturers also export phonograph records to numerous foreign countries, and export sales (not included in the U. S. sales figures given above) in round numbers have averaged about $10,000,000 (factory value) per annum in recent years.**

Estimates of the number of companies in the phonograph record business vary widely. One reason for this is that new companies constantly are being formed, while others become inactive, merge or go out of business. Recording facilities and manufacturing services are readily available on a fee basis so that entry into the record industry is simple and inexpensive. In 1962, the trade paper Billboard Music Week published a list of record companies that it considered active at the time; over 650 companies appear on that list, although some of them may have released only one record.' It seems safe to say that, at any given time during the past few years, there have been several hundred phonograph record companies in active operation in the United States. It is evident that this industry provides employment to a substantial number of persons, including not only those on its

See Appendix E.

** See Appendix F for import and export statistics.

regular payrolls, but also the musicians and vocalists who either are engaged under term contract or (more often) assembled as needed for recording purposes.

The average person today hears music in the form of phonograph records more often than in any other way. The quality of sound recording has been increased consistently over the years and high fidelity reproduction equipment is now a commonplace possession. A trade paper survey shows that there were phonographs in 76% of the homes in the United States in 1961, as compared with 44% in 1950. Records also are performed constantly on coin-operated machines ("juke boxes"). In addition, numerous radio stations depend almost entirely on records for their program material and the number of commercial radio broadcasting stations in the United States reached a total of 4,517 in 1961, more than twice the number that were on the air in 1948. An industry survey reports that record programming occupied 46.9% of total air time for all AM radio stations broadcasting in 1953, a figure that had increased to 79.7% for a much larger number of stations by the spring of 1963.10 It is common knowledge that FM radio programming relies even more heavily on records than AM, so that complete statistics would show an overwhelming majority of air time devoted to the playing of phonograph records.

It has been estimated that United States manufacture accounts for 53% of the world record market." However, this figure gives only a scant impression of the world-wide influence of the American record industry. The popularity of American music and American artists is enormous throughout the world, and their records frequently will be found on best-seller lists simultaneously in the United States and a dozen or more foreign countries. 12 Phonograph records produced from performances by American artists represent by far the majority of all record sales throughout the entire world.

The foregoing summary is intended to give some idea of the economic and social importance of the industry whose existence is threatened by the Register's recommendation for the repeal of the statutory license system for recordings.

3. The Development of the Compulsory License Provisions.

One of the most important facts to bear in mind about the compulsory license system is that there was no recording right in musical compositions at all prior to the Copyright Act of 1909. Until Congress specifically granted the right to make mechanical reproductions, no infringement of copyright was involved in the production of phonograph records, piano rolls and similar devices. For these purposes, all music was in the public domain, even though it was protected by copyright against unauthorized performance and other uses. Manufacturers of mechanical devices had the full legal right to use copyrighted music just as they did music on which the copyright had expired, without the need for a license and without the obligation to pay royalties to anyone. Neither the music publisher who owned the copyright nor the writer of the music collected any income from the exploitation of the mechanical right. It simply was not within the scope of the monopoly granted to the copyright proprietor by the statute then in effect, just as the public performance of music for non-profit purposes does not constitute an infringement of copyright under the present statute.

This interpretation of the 1891 Copyright Act was announced definitively by the United States Supreme Court, which concluded, after a careful review of the circumstances, that Congress deliberately had intended to permit the manufacture of mechanical musicreproducing devices to continue without any obligation by the manufacturer to the copyright proprietor.13 The International Convention for the Protection of Literary Property ("Berne Convention") of 1886 contained a section providing specifically that mechanical devices such as piano rolls and phonograph records were not to be considered infringements of musical copyright." Although the United States. never adhered to the Berne Convention, this section demonstrates clearly the general attitude prevailing throughout the world at the time. Furthermore, the Supreme Court pointed out that Congress was aware both of the Berne Convention and of the existence of various types of mechanical music-reproducing devices when it enacted the 1891 statute, and held, therefore, that it was not the intention of Congress to treat them as infringements.15

When Congress saw fit to grant the mechanical reproduction right
to musical copyright owners in the Act of 1909, it deliberately attached
to this right the condition that, once exercised, it must be available
to all competing manufacturers of mechanical devices on standard
terms.

The statutory license system for recordings accordingly does not
take away from copyright owners anything they once had. On the
contrary, it provides vast sums in royalties which ordinarily are
shared equally between the publisher of the musical composition and
its writer (or writers).10

The key to understanding the statutory license system lies in the
reasons that impelled Congress to impose this limitation on musical
copyright in 1909. In a phrase, it was prevention of monopoly. The
need for this approach is written clearly in the record of the con-
gressional hearings and committee reports that deal with the copy-
right revision efforts of the years 1905-1909 which culminated in the
passage of our present Copyright Act.

The fear of monopoly grew largely out of the revelations during
the hearings of certain agreements that had been made in connection
with the test case that led to the authoritative ruling by the United
States Supreme Court that mechanical reproductions were not infringe-
ments of copyright under the law as it existed prior to 1909.17 This
view had been expressed by lower courts in earlier cases, both as to
piano rolls18 and to phonograph records," but the music publishers
were still hopeful, while the revision hearings were in progress, that
they could secure an interpretation of the 1891 statute which would
give them the right to control the use of musical works in the manu-
facture of mechanical devices.

At the time, the most popular mechanical device for the reproduc-
tion of music was not the phonograph record, but the perforated music
roll for use in player-pianos. Testimony at the hearings disclosed that
the Aeolian Company, the country's largest piano roll manufacturer,
had entered into a series of contracts in 1902 with over eighty leading
music publishers. In consideration of a royalty payment, each music
publisher granted the Aeolian Company exclusive mechanical repro-
duction rights for piano roll purposes in all copyrighted music con-

trolled or to be acquired by the publisher for a period of 35 years.
Simultaneously with each such contract, the music publisher and the
Aeolian Company entered into a second contract, under which the
Aeolian Company agreed to pay all the expenses of a test case, to be
brought against some other manufacturer, seeking a determination of
whether piano rolls constituted an infringement of copyright. The
second contract also provided that there was to be no obligation on the
Aeolian Company to pay royalties under the first contract unless the
music publisher's rights were upheld in the litigation by the court of
last resort.

In 1906, while the test case was pending on appeal,20 Congressional
hearings on copyright revision began and one of the bills under con-
sideration specifically included as part of the copyright grant the
right to make and sell devices adapted to reproduce the copyrighted
work to the ear. Congress was warned immediately that such a provi-
sion would result in the monopolization of the piano roll business by
a single company.

The Committees on Patents of both the Senate and the House,
meeting jointly, heard testimony to the effect that manufacturers would
not oppose payment of a royalty, so that composers could receive some
compensation for the use of their work, provided that this was arranged
in such a way that every manufacturer would be entitled to make use
of the music." This was the genesis of the statutory license idea for the
recording of music that eventually was incorporated into the Copyright
Act of 1909.

22

Committee hearings were postponed pending a ruling in the test
case. The Supreme Court decision holding that a piano roll was not a
copy of a musical composition and therefore did not infringe the pub-
lisher's copyright was handed down on February 24, 1908. However,
two of the pending bills contained provisions granting the recording
right and thus would have reversed the Supreme Court. The potential
monopoly problem therefore still existed; and Congress also heard
reports of restrictive practices in the phonograph record industry in
Europe that might have extended to this country."

A set of the contracts is reproduced in Appendix G.